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Abstract
In recent years, the financial statecraft literature has expanded from a focus on great powers to encompass the behavior of emerging powers. While offering an important corrective, the literature does not yet adequately address the full variety of the emerging powers’ strategies of financial statecraft. In particular, we argue that regional middle powers behave differently from regional great powers even when they have similar capacities at the global level. For instance, both India and South Korea are categorized as emerging powers in the financial statecraft literature and deploy regional strategies to reduce their financial vulnerability. Yet their financial statecraft strategies have clearly differed in practice. India has sought to challenge the global status quo and influence its neighbors, while South Korea has pursued more modest and defensive goals. Drawing on the middle power literature, we posit that middle powers’ relative position within their home regions explains such differences among the financial statecraft of emerging powers. To demonstrate the utility of this approach, we examine South Korea’s financial statecraft in the Asia-Pacific region. We find that its position as a regional middle power effectively explains its patterns of bilateral and regional cooperation in the monetary sphere.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1 “Capacity” is not just a proxy for overall economic power. Capacities also vary by issue and policy tool. For example, India is the world’s third largest economy on a purchasing power parity (PPP) basis but has a closed capital account and only limited involvement in international financial standard-setting. Singapore, in contrast, is an important player in regional financial intermediation and in global financial standard-setting, but a small economy.
2 See Miller (Citation2021) on the ways in which rising powers can develop visions of their leading roles. While she sees India as not yet aspiring to a leading global role, she makes clear that India has long asserted regional leadership. (India’s role in the Non-Aligned Movement, in this formulation, was not about becoming a leading power, but creating resistance against the United States and Soviet Union.) (Miller, Citation2021, ch. 6)
3 For a recent reiteration of this point, Morgan Stanley decided to keep Korea in the MSCI emerging markets index. Youkyung Lee, “South Korea’s $1.9 Trillion Stock Market Has to Wait Longer to Enter MSCI’s Big Leagues,” Bloomberg, June 22, 2023.
4 Association of Southeast Nations plus China, Japan, and Korea
5 The IMF link stipulated that only a small portion of funds (initially 10%, rising to 20% in 2005) could be mobilized unless a liquidity provision was done in coordination with the IMF, effectively tying use of CMI to an IMF bailout. For East Asian economies still traumatized by the 1997-98 financial crisis and resulting IMF packages, this made CMI essentially unusable.
6 This section draws heavily on in-depth interviews conducted with Yoon Deokryong, a former policy advisor to the vice minister of the Korean Ministry of Economy and Finance, Bank of Korea’s (BOK) financial cooperation department team, and two policy executives from the Korean National Research Council (NRC) in the summer of 2021. The interview with Yoon was aimed at identifying Korea’s initial intentions in participating in the CMI as Yoon was a direct participant in devising Korea’s policy for arrangement in the early 2000s. Interviews with the BOK were mainly aimed at understanding Korea’s current perceptions on the now multilateralized CMI, along with how the bank officially perceived the CMI at the time of its inauguration. Finally, interviews with NRC executives sought to gain a general understanding on Korea’s motivation behind its extensive technical cooperation with the financial arrangement and its surveillance institution.
7 A similar logic inspired Japanese policy makers who had advocated a regional currency basket and regional settlement as part of a strategy to make the yen the dominant regional currency. (Grimes, Citation2009, ch. 4)
8 Yoon’s version contrasts with the accounts of Japanese officials and economists, who trace the idea back to the work of Japanese economists in the late 1990s. See Grimes, Citation2009, ch. 4.